Michael Hicks: Comparing the Foxconn & Muncie debacles

MUNCIE — Over the past week, I attended a Muncie City Council meeting on very contentious issues and travelled to Wisconsin to speak to a group of economic developers about the Foxconn debacle. Both events have eerily similar aspects that should anger and frustrate voters. In 2017, Wisconsin hastily put together the world’s largest tax incentive package to lure some 13,000 jobs to the state. This deal would have cost each Wisconsin family about $1,700 over the life of the project. This is more than $170,000 per job. The deal happened at break-neck speed, behind closed doors, and without benefit of any serious economic analysis. From beginning to end, this arrangement illustrated raw contempt for open government and the interests of citizens. Once the dust settled, along came several economic and fiscal studies. All present some version of the same story; the Foxconn deal will never provide taxpayers a positive return, and as initially structured will damage the economy. This damning assessment is equally true in the matters before the Muncie City Council meeting I attended. On a pleasant August evening, roughly a thousand local residents swamped a Muncie City Council meeting. The frustration of the crowd was palpable. At issue was the continued lack of transparency and concern for residents of the region. Two issues involving tax incentives warrant special scrutiny.The Muncie meeting opened with the city’s two largest employers asking the City Council to support tax incentives to construct high-end apartments. These apartments will subsidize the housing costs of some of the most affluent members of the community. As everyone knows, tax incentives come at the expense of local taxpayers and taxing units. In this instance, the lost revenues to Muncie Community Schools alone is more than $2 million over the life of the project. At best, this is callous indifference to the citizens of Muncie. At its worst, it is nothing but contemptuous disregard for their interests. As bad as this process and outcome was, it was not what brought out the crowd. The thousand or so local residents came to the Muncie City Council meeting mostly to express their concern over a proposed recycling facility located 1.5 miles upwind from Muncie. However, the facility is not just locating there; it is being paid by taxpayers to locate there. Like the apartment project, this recycling facility is to receive a tax subsidy. Unbelievably, Muncie has agreed to pay more than $175,000 per job for this plant. This subsidy will result in significantly more debt for a city that imports 5,000 workers each day to fill the jobs it already has. These facts alone should result in deep voter outrage, but that is hardly the worst part. As the local media now report, many months ago this company applied for a permit to release mercury and other toxic pollutants into the air and water. My four semesters of college chemistry and physics do not qualify me to speak to the science of mercury emissions. However, I do understand the economic development effects of even a hint of mercury contamination. It would be catastrophic to the future of Muncie. Even small mercury emissions reduce home values and cause residents to move. The best studies I have seen estimate the effect of small discharges at just under 10% of property value. This would cause widespread and nearly permanent fiscal damage to schools, libraries, and public safety. The Muncie Redevelopment Commission did not do their homework. They negotiated this deal and presented it to the Muncie City Council months after the filing of state permits to release mercury and other toxins. At best, this is callous indifference to the citizens of Muncie. At its worst, it is nothing but contemptuous disregard for their interests and wellbeing. The factors that tie together all these projects are simple. It is a raw and unfettered disdain for citizens and an informed political process. The Foxconn project proceeded to the Wisconsin legislature with only a cursory economic analysis. The Muncie housing project relied on a series of studies in which the authors simply invented fictional data to make the project look necessary. The recycling plant proceeded without a study. Citizens have every reason to be outraged and to take action. We must hold the architects of these deals responsible, both as institutions and individuals, at the local and state level. I have spent a career studying and writing about tax incentives and the factors that cause people and places to struggle or thrive. The process of that research often leaves me writing about very narrow tax or policy issues. However, minor misapplication of a tax instrument is not what ails either Muncie or Wisconsin‘s Foxconn deal. The problem is in both places is broken politics. In these places, the elected officials, economic developers, and large employers decided they owe nothing to voters. They are so certain their dandy plans are clever that sharing facts with the people paying the bills and bearing the financial risks is a pointless inconvenience. That is anti-democratic, damaging to economic growth and illustrates scorn for people and process in both places. Along with tangible changes, voters in these places deserve an apology.

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.

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